TORONTO – Smartphone maker BlackBerry’s slide from innovator to also-ran epitomizes the challenges facing the Canadian dollar as the North American country looks to exports to fuel growth.
Now Canada buys more iPhones than it sells BlackBerries, James Kwok, the London-based head of currency management at Amundi Asset Management, which oversees the equivalent of $1 trillion, said in a Jan. 7 phone interview. A lot of structural changes have been happening in Canada over the last few years, which has made Canada’s trade balance structurally weaker.
A report this month showing a trade deficit nine times wider than economists forecast started the Canadian currency’s plunge to a four-year low of $1 Wednesday, and left it poised for a sixth monthly decline against a basket of nine developed-nation peers, the longest slump since 2002. Kwok is betting that this slide is only the beginning, and hedge funds and other large speculators are amassing close to the most bets against the Canadian dollar in nine months.
Canada’s economy grew at the slowest pace last year since the recession, and has posted the longest streak of consecutive trade deficits in at least 25 years. The country has been forced to discount its largest export, crude oil, amid shipping bottlenecks, and BlackBerry became the latest manufacturer to cut operations.
In the past, Canada benefited a lot from the U.S. economy because they are very close to each other – a big part of exports from Canada are going to the U.S, Kwok said. This time is different. I think the recovery will be much slower unless the Canadian dollar goes much lower.
The loonie, as the Canadian dollar is often called for the aquatic bird on the Canadian $1 coin, fell to the weakest level against its U.S. counterpart since September 2009 Wednesday. The currency’s 3.3 percent decline this year makes it the worst performer after South Africa’s rand and tenders pegged to the rand: the Lesotho loti, Swaziland lilangeni and Namibian dollar.
Against the greenback, the difference in the number of wagers by hedge funds and other large speculators on a decline in the Canadian dollar compared with those on a gain, known as net shorts, was 60,542 contracts as of Jan. 7, data from the Washington-based Commodity Futures Trading Commission show. The average over the past year is net shorts of 23,986.
The Bank of Canada is expecting exports to revive flagging growth, though Gov. Stephen Poloz said that he doesn’t fully understand why shipments haven’t been stronger. Kwok’s bet that the loonie will continue to drop is based on Poloz’s assurances to keep interest rates low until the economy recovers, and the central bank’s assumption that exports will fuel the recovery. The only way for both those conditions to come about is for the currency to weaken, Kwok said.